Today TaxMama hears from Scott in the TaxQuips Forum who needs guidance. “My mother in law babysits for me, and I pay her a flat amount every month to do so. Her only job is working for us right now. She needs 3 more years of income to earn enough credits to be fully accrued in Social Security. What is our best option? Should we treat her as an independent contractor, or should we issue her a W-2 at year-end?”
IRS Publication 15, deals with employees and payroll. Pub 15 has some special rules when it comes to hiring family. When you hire a parent to take care of your child in your home, you do have to put them on payroll, like anyone else you would hire. But you don’t have to pay FUTA taxes on their wages.
Since you are married (not divorced, separated, or widowed), all the other payroll taxes apply. Which means, you will be withholding Social Security taxes – and helping her get her three years!
Since your parent is working as a household employee, you can use Schedule H to report the wages and withholding and FICA/Medicare taxes due. Although Schedule H is part of your personal income tax return, you still need to:
a) Get a Federal employer ID number
b) Prepare a W-2 and give it to Mom in January.
c) And you need to register with the state payroll department and file all the usual state payroll tax returns.
Note: Since it’s already December, if Mom has been working for you all year, register with IRS and your state right away to get the ID numbers. File ONE payroll tax return with the state for December wages, treating all the earlier months as advances against the one paycheck.
Perhaps you want to get a tax pro to help you out with this catch-up procdure, at least for this year. You may be able to handle it yourself next year, with a little hands-on guidance. Get on this immediately.
And remember, you can find answers to all kinds of questions about payroll tax issues, and other tax issues, free. Where? Where else? At www.TaxMama.com.
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